The Justice Department is signaling that it may seek to block a proposed search-advertising deal between industry titans Google and Yahoo. The government has hired veteran antitrust lawyer Sanford Litvack, who headed DoJ's Carter-era antitrust division, to review the planned partnership, which would give the firms a combined share of 80 percent of the domestic search-ad market.

The Wall Street Journal broke the news of the hire late yesterday, but the markets may have had advance notice: Shares in Google closed down nearly 5.5 percent Tuesday, shedding another third of a percent at the end of trading today. That makes for a one-two punch this week, coming on the heels of a decision by the influential Association of National Advertisers to publicly oppose the deal. In a letter to DoJ's top antitrust attorney, ANA Presdient Bob Liodice argues that the partnership would "diminish competition, increase concentration of market power, limit choices currently available and potentially raise prices to advertisers for high quality, affordable search advertising." Individual major advertisers, including Coca-Cola and Procter & Gamble, have sent their own letters in opposition, according to press reports.

Both companies sought to minimize the news. A statement from Yahoo indicated that the firm had been informed "that the Justice Department, as they sometimes do, is seeking advice from an outside consultant, but that we should read nothing into that fact." (Read what you will into the fact that "consultant" Litvack last week resigned from the Los Angeles and New York based law firm at which he was a partner.)

Google spokesman Adam Kovacevich noted that the company had voluntarily delayed enactment of the partnership—first floated in June, after the companies tested the waters in April—to give federal regulators time to review the arrangement. "While there has been a lot of speculation about this agreement's potential impact on advertisers or ad prices, we think it would be premature for regulators to halt the agreement before we implement it and everyone can judge the actual impact," said Kovacevich. "We are confident that the arrangement is beneficial to competition, but we are not going to discuss the details of the regulatory process."

While advertisers have expressed concern over the potential market power the formidable pair might wield, both firms are quick to note that the proposed arrangement would be a nonexclusive revenue sharing deal in which Google gained rights to run ads on Yahoo sites. Yahoo and Google would continue to compete for advertising dollars, and prices would be set by auction.

Many observers see the hand of perennial search-wars Bronze medalist Microsoft looming in the background here. Redmond made its own abortive bid to acquire Yahoo outright, arguing that the union would create a counterweight to Google's dominance. During Senate hearings in July, top Microsoft attorneys argued that the search-ad competition would be crushed beneath the lumbering wheels of the Yahoogle behemoth.

Still, several analysts have indicated that any legal challenge by Justice would face an uphill battle, with courts hesitant to enjoin the partnership in the absence of any demonstrable competitive harm. Both companies have signalled that they still intend to follow through with the deal as planned, beginning next month.